How to Donate a Car for Maximum Tax Benefitsby Contributor
Are you about to get rid of your used car? If so, why not donate it to a charitable organization instead of trading it in or just getting rid of it at the dump? This article will show you how to find the best charitable organization for the maximum tax deduction, how to donate the car itself, and how to reap the tax deduction benefits on your tax return for your car donation.
How to Choose a Charitable Organization for a Car Donation
Find a charitable organization for your car donation online. For the maximum tax benefit, you must find a non-profit organization where the car donation will be used "in direct furtherance of the organization's charitable purpose." Examples would be either by the car being used in the business or the car being donated to a needy client.
One way a charitable organization uses a car in direct furtherance of their charitable purpose is if they use the car in the business. This would mean that the organization is going to keep the car, and perhaps give it to an employee to use. Or, maybe the car donation will be used for the business to deliver its products, as another example.
A second way the car donation center could use the car is to make significant use of the asset. The charitable organization may choose to make material improvements on the car, for instance.
Third, the charitable non-profit organization may donate the vehicle to a needy person or family. One organization that does this is Charity Cars (see Resources below). This charitable organization gives cars to needy families to help them become self sufficient.
How to Donate the Car to Charity Cars
Call Charity Cars or donate online on their website (provided below). Charity Cars generally provides the easiest method and best tax deduction of any charity.
Charity Cars will make a predetermination of whether your car will be able to be used as a program car that can be given to a needy family. You will get an email or letter back about the decision. If the car isn't worthy, it will be sold at auction or for salvage, in which case you can only use the sale value or salvage value.
If you are pre-approved, you will send Charity Cars your signed title, and they will pick up the vehicle and have it inspected.
If approved, you get a tax voucher in the mail letting you know you can take the fair market value for tax purposes. To find the fair market value, you can use the Kelley Blue Book, with online source listed below. Use the "private party value" in the book.
How to Fill Out Taxes to Get Tax Deduction on Donated Car
Once your vehicle donation has been accepted to be used to further the charitable organization's purpose, you are ready to fill out your tax forms. You must use Form 1040 if you will be itemizing deductions (which you will be doing.) Get Federal Tax Form 1040 online at the IRS website listed below.
You will also need a Schedule A and B for Form 1040. Schedule A and B are on one page, front and back. Only Schedule A is pertinent here, as it is the Itemized Deduction form.
Once you have Form 1040 and Schedule A, you will need to fill in the appropriate places on each form for your charitable car donation. On Schedule A, find the section marked "Gifts to Charity." There will be a line for "gifts other than by cash or check." You will place the fair market value of your donation on this line (adding together any other gifts to charity other than by cash or check).
If the amount of your charitable gifts is over $500, also fill out Form 8283, available on the IRS website.
Once you fill out the rest of Schedule A, your total itemized deductions will go onto Form 1040. They go on the line marked "Itemized Deductions."
- check For your used car donation, make sure to choose a charitable organization that will be either using the car themselves in their business or giving the vehicle to someone in need.
- check If the charitable organization is going to make material improvements to your car donation, you must get written notice within 30 days about the use and duration of such improvements and that the asset won't be sold or bartered until the improvements are finished.
- check If the fair market value of your vehicle is less than $500, it doesn't matter what the car will be used for. You can take the full fair market value on your tax return.
- check The charitable organization accepting your car donation will not make a determination of the car's fair market value. You are required to do this.
- check Anytime you make a donation to a charity of anything other than cash, such as to Goodwill, you must determine the value of your donation based on the applicable tax law.
- check Don't forget that if the fair market value of the donated car is over $500, you also must fill out Form 8283.
- close For maximum tax benefits, your charitable car donation should not be to a car donation program that plans to auction or sell the car. If so, you will only be able to take a tax deduction for the amount the car was sold for.
- close Goodwill or Salvation Army car donations generally will be sold at auction.
- close Even donations to Purple Heart Car Donation Program are usually sold, so you will only be able to use the sale price for your tax deduction if you donate to Purple Heart.
- close You must make sure your car donation to Charity Cars is accepted as a "program car" that will actually be donated to a needy person or family. Don't just assume this--your car needs to pass certain requirements. The car will be inspected by Charity Cars for a formal decision.
- close Make sure that you are going to be itemizing deductions on your tax return. If you take the standardized deduction, your car donation will not give you any sort of tax benefit or tax deduction.
Items you will need
- photo_camera Christi Bowers, 2006; Www.BigFoto.com